Continuous Production Schedule: Adequate inventory is useful for the production schedule because it ensures that production can continue at all times, thereby ensuring customer demand is met.Ħ. Lower Setup Costs: Maintaining an adequate inventory is useful for a company because it will benefit the production setup cost, which further results in a lower per-unit cost of output.ĥ. Lower Ordering Costs: When companies purchase raw materials and finished goods in large quantities, they reduce the ordering cost in terms of preparing new orders, checking and validating receipts, and communicating with suppliers.Ĥ. Discounts: Large purchases of raw materials and finished goods are likely to lead to greater discounts than would otherwise be the case with smaller purchases.ģ. Therefore, holding inventory can have positive externalities regarding customer service.Ģ. Customer Service: A company with sufficient reserves of stock will not lose customers and will supply goods within a reasonable time. The following are the benefits of holding adequate inventories:ġ. Holding inventories is useful to a firm in the processes of purchasing, producing, and selling.Ĭompanies that do not hold adequate inventories of raw materials and finished goods may lose customers or suffer from delays in supplying goods as per their orders. Finished Stock: These are the final products available for sales made out of raw materials.Work-in-Progress: These are raw materials that have been applied in the production process but that have not been finished.Raw Materials: These are the basic materials used for production.Inventories are the goods that will be sold in the future in the normal course of business operations. Inventory management encompasses considerations relating to issue prices, norms of receipts and inspections, determining the economic order quantity (EOQ), providing proper store facilities, and keeping an effective check on obsolescence. Inventory management is the process of fixing the minimum and maximum limits of an inventory and determining the size of inventory to be maintained.
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